Online Investing…in Rock and Roll?

Older musicians, songwriters, producers and their families are selling off royalties to fund retirements – and investors are snapping up the rights hoping for a stream of regular income.

With streaming services giving the once-ailing music business a major boost, buying and selling royalties has suddenly become big business…and the emergence of online marketplace Royalty Exchange (learn more here) means that anyone can now get involved.“If the Rolling Stones need money, they go on tour. But there could be a producer down the chain who wants to sell his royalties – and that’s where we come in,” says the company’s communications director Antony Bruno.

The Denver-based company recently put 24 songs by the Doobie Brothers, including their chart topping 1975 hit ‘Black Water,’ up for auction. Sample the goods here:

Bids started at $160,000 but not everything goes for that much, meaning ordinary people can invest. A package of songs by Santana and Josh Grobin (plus some TV theme tunes currently being used in Europe) earns just under $5,000 a year in royalties and recently sold for $24,000.

It’s not just royalties that are going under the hammer. In November a Grateful Dead fan looking for a slice of Jerry Garcia’s estate bid $50,750 on his Ben and Jerry’s Cherry Garcia ice cream trademark.

Royalty Exchange, which likens itself to internet-driven estate agency Zillow or LendingTree loans, acts as the online go-between for sellers and investors. In 2017 it staged 136 online auctions, netting $8.6 million in deals. With 160 auctions this year, they’ve raised double that for artists and their heirs.The company’s website provides in-depth analysis of each item’s royalty history and Bruno recommends investors do some of their own research too.

“Look at radio plays and streaming platforms like Spotify, which have really grown in the past three years,” the former Billboard digital editor says.“If a 10-year-old song is still being played on the radio, that’s a good one. Streaming platforms are where the growth is now and if something is still being played on the radio, it will stream.Any new song, no matter how good, will see a decline in income after 18 months. Several years after that, when there’s a plateau, you can analyze the earnings. For the creatives, selling is often personal. Older ones might want to buy a house or get a lump sum for retirement, younger ones to create new music or build a studio.”

Like any other investment, though, investing in royalties involves risk. Investor John Palumbo, whose vast collection of royalties includes songs by Johnny Cash, Dwight Yoakam and Tammy Wynette, cautions against putting big retirement funds into music.“You’re not going to get the Beatles or Mick Jagger, those royalties are unaffordable to the average person,” says Palumbo, who lives in Jacksonville, Florida.

“Lesser royalties fluctuate, they are a bit like gas wells that dry up. You might get $50 to $200 a month, then it dwindles to $5 or $10. If someone asks me about investing in royalties, I will say be discretionary, look at it as investment gambling money, like buying lottery tickets.Some of my royalties have done well, some have completely pooped. Sometimes there’s a nice surprise.I have a Johnny Cash song ‘Home of the Blues,’ Sony wanted to use it on a soundtrack and made me an offer. When I asked if there might be more money, they said they would pick another song and move on. They gave me a nice little check but that was it.”

Palumbo, 60, paid $10,500 for a royalty chunk of Alex Haley’s books ‘Roots’ and ‘The Autobiography of Malcolm X.’ The ‘Roots’ rights have dwindled to almost nothing despite a TV remake two years ago but ‘Malcolm X’ continues to sell. “It’s a winner for me,” he says. “It still sells tens of thousands of copies a year because it’s read in colleges and when Denzel Washington’s movie came out, sales surged again.One obscure book I bought is ‘How To Be Yourself” by Cherry Hartman. Every so often I get a note saying the rights have been sold in Japan, then Scandinavia and it keeps on selling.”

His favorite book royalty is a slice of the Bible – an American edition index that publishers have to pay him to use – that has barely made back it’s $5,000 price tag. “It’s a great conversation piece,” says Palumbo, who combines investing with writing self-help marketing books and motivational speaking. “It doesn’t make much money but I have not exhausted all the options on that yet.”

1 comment

Just one thing though about the comment from John… royalty investing is really not at all like buying a lottery ticket.

Investments are often grouped into two categories: income and growth. Growth is essentially buy low sell high. Income is about generating cash.

The royalties on our platform all serve income investors, not growth. They put actual cash in the pockets of investors by generating real yield (usually double digits) that’s not correlated to interest rates or stock market sentiment. It’s more like real estate or bonds than stocks. Anyone comparing royalty investing to stock investing is making a big mistake.

All the royalty opportunities on Royalty Exchange must meet certain historical benchmarks to be listed so there’s a track record of income to evaluate before buying. Sure there’s a risk like any other investment, but nothing like a lottery ticket.